5 Top-Rated Value Stocks

Are you familiar with the dynamic duo of Fama and French? No, they didn't sing "Private Eyes" -- that was Hall and Oates. And no, they didn't star in Tommy Boy -- that was Farley and Spade.

While the names Eugene Fama and Kenneth French may not come up in most dinner conversations, the two have done some of the most interesting academic research on stocks that I've read. In short, they've proposed that there's more to stock returns than volatility -- which was most academics' previous consensus. In research they conducted over various periods and across multiple geographic locations, Fama and French determined that stocks characterized as "value stocks" have consistently outperformed non-value stocks.

Today, I've rounded up five value stocks that are all trading at less than 1.5 times their tangible book value. To focus on high-quality stocks, I've cross-referenced these against ratings in our Motley Fool CAPS community of more than 86,000 investors.

Though the CAPS community obviously likes these stocks, I would advise against investing in any of them on the basis of this one metric alone. With that I mind, I thought I'd dig in a little further to the story at Motley Fool Hidden Gems favorite First Marblehead.

The long, hard fall
Many stocks out there have been hit by the credit crisis despite being innocent bystanders in the whole affair. Sinking consumer confidence and a lackluster economy brought on by the myriad problems in the financial markets have taken the steam out of these stocks even though they aren't directly exposed to the main risks out there. First Marblehead is not one of them.

The stock has lost nearly 80% of its value over the past year as investors headed for the hills, and it's still hard to say whether they were justified in doing so. First Marblehead works in the world of structured finance. It helps the backers of private student loans package and resell the loans as bundled securities and gets paid handsomely for its efforts. Right now, though, with the credit markets crazier than Gary Busey in his "I'm With Busey" days, nobody wants to buy the securities First Marblehead is selling.

So right now First Marblehead is more or less a business without a business, and it's currently running at a loss as it waits for the buyers of securitized loans to come out of hiding. A cash infusion from Goldman Sachs (NYSE: GS) promises that the company can continue to keep the lights on while it waits, but it still can't wait forever. In addition, during the company's most recent earnings conference call, management talked about the potential to move the business model in a new direction to help diversify its revenue streams. This would help, but it won't happen overnight.

First Marblehead has a big fan base on CAPS, with 2,865 players rating the stock an outperformer versus just 117 who think it will lag the market. One First Marblehead bull, CAPS All-Star spiritof78, wrote last December:

Busted growth stock anyone? I was never convinced earlier on about this company [maintaining] its high flying growth ... I liked the business model but found other options more appealing. At a [big] discount though why not buy the fire sale investors have started on this company's stock?

Though I tend to agree that the company's long-term prospects look good, it remains unclear what will happen for the time being. The stock may continue to drop as uncertainty, fear, and the real prospect of a bad outcome increase. On the other hand, if the securitization markets open back up or the company is able to get new revenue streams up and running, investors getting in at today's price could see hefty rewards.

So what do you think? Are these stocks values, or value traps? Log onto CAPS and let the rest of the 86,000-member community know what you think.

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